U.S. stocks closed with moderate to sharp losses in a day of broad weakness. The market suffered from some major second quarter earnings preannouncements, which raises concerns about how strong the earnings recovery will be going forward, says Standard & Poor's MarketScope. Investors were also eying the Federal Reserve's policy meeting on June 24 and 25. Market opinion is fairly unanimous on the likelihood of a rate cut. But Wall Street is divided on whether Alan Greenspan & Co. will lower rates by 25 or 50 basis points. S&P continues to expect a rate cut of 25 basis points.
The Dow Jones industrial average closed down 127.80 points, or 1.4%, to 9,072.90. The broader Standard & Poor's 500 index lost 14.04 points, or 1.43%, to finish the day at 981.65. The tech-heavy Nasdaq composite shed 33.9 points, or 2.1%, to 1,610.82. Biotech companies suffered, despite news of a major merger between Biogen (BGEN) and Idec Pharmaceuticals (IDPH). Investment banking stocks, which had been a market leader, were also lower.
"You have to look at the big picture: when you rally 25% in a little over three months, you're vulnerable," says Larry Wachtel market analyst at Prudential Securities. "The market has done a lot in a short period of time, and got itself overextended. So anything can come along and knock it around... it has been living on borrowed time, and today it got whacked."
Topping company news Monday: the planned $6.7 billion merger between U.S. biotechnology giant Biogen and Idec. Each share of Biogen common stock will be exchanged for 1.150 shares of Idec common stock. Idec shareholders will own 50.5% of the stock of the combined company, with Biogen shareholders owning 49.5%.
The combined company will be called Biogen Idec. The companies foresee Biogen Idec achieving 15% compound annual revenue growth, and approximately 20% percent compound annual cash earnings per share growth in 2003-2007 period, according to the press release announcing the deal. Together, the companies will have two "blockbuster" drugs, AVONEX, for patients with multiple sclerosis, and Rituxan, for non-Hodgkin's lymphomas, and 10 products in clinical development. Biogen was finished Monday trading down 5.3%, and Idec lost 5.5%.
Pharmaceutical company Genentech (DNA) and Idec announced on June 20 that they plan to develop one or more new humanized anti-CD20 antibodies targeting B-cell disorders for a broad range of indications, according to a press release. Genentech lost 3.9%.
Tenet Healthcare (THC), a U.S. hospital chain, sees its second-quarter performance significantly below consensus, and expects earnings per share of 40 cents to 50 cents from continued operations in the third and fourth quarter combined. That excludes the effects of any future impairment, restructure, or other charges. The company expects net operating revenues of approximately $13.6 billion for 2003, down from $13.9 billion in 2002. Standard & Poor's downgraded its opinion on the stock to 'avoid' from 'hold'. Tenet shares closed down 26%, tugging other health care facility stocks lower.
Unilever (UN) ended the day 9.7% lower after saying that its performance in the first half of the year has been slower than expected, and revised its outlook of leading brand growth to around 4% for the year. The company still expects to meet its 2003 earnings outlook.
Fannie Mae (FNM) finished 3% lower on accounting worries.
Avery Dennison (AVY), which manufactures products for the consumer and industrial markets, has lowered its second quarter earnings per share guidance to 68 cents to 72 cents, down from an estimated range as high as 82 cents. The company sees as much as $1.2 billion revenue in the second quarter, but cites slower-than-expected sales growth due to soft economic conditions. Avery Dennison's stock lost 9%.
Pharmacy retailer Walgreen (WAG) announced a third-quarter same-store sales increase of 8.2%, and 29 cents diluted earnings per share, up from 25 cents diluted earnings per share in the same quarter a year ago. "Our operating results were below our plan," says chairman and CEO David Bernauer in a company press release. S&P reiterated its 'accumulate' opinion of the stock. Walgreen's stock was trading down 7.1%.
Children's publisher Scholastic (SCHL) lost 4.8% despite news of record-breaking sales five million copies in the first 24 hours of Harry Potter and the Order of the Phoenix.
This week's economic news calendar is thin. The key data releases for the week include consumer confidence on Tuesday, home sales on Wednesday, and Michigan sentiment on Friday.
Companies scheduled to report earnings this week include FedEx (FDX), Palm (PALM), Goldman Sachs (GS), 3Com (COMS), General Mills (GIS), and Nike (NKE).
Treasuries benefitted from a low-volume rally on Monday. Traders reacted to new fears of terrorism threats in Kenya, Texas, and Greece, just days before the Fed announces its decision on a rate cut. In the data-free session, supply and technicals were dominant, says economic research outfit MMS International.
European stock markets finished lower on Monday following negative corporate news. London's FTSE 100 index was down 77.4 points, or 1.86%%, at 4,082.70 after some disappointing news from brewer Heineken, which announced that its sales are lagging, while Lloyds TSB net interest margin narrowed.
In Paris, the CAC-40 index lost 70.87 points, or 2.22%, to finish at 3,119.24. In Frankfurt, the DAX index closed down 49.38 points, or 1.52%, at 3,189.60.
Asian markets finished mixed on Monday. Japan's Nikkei 225 index closed up 16.75 points, or 0.18%, to 9,137.14. High-tech and blue-chip shares fell on profit taking, such as Tokyo Electron, which lost 0.94%; Advantest, which lost 1.76%); Sony, down 1.99%; and Nissan Motor, which closed down 1.45%. Meanwhile, investors shifted to bank stocks and large-cap issues. Nippon Steel, one of such beneficiaries, jumped 3.92%.
Hong Kong's benchmark Hang Seng index fell 196.02 points, or about 2%, to 9,734.29.